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Estate Planning and Assets: How Much Do You Have To Pass On?

Forbes article by Larry Light

EstatePlanning (2)We don’t like to think of our own death, but given its inevitability, sooner or later, we need to be ready to pass along our worldly goods to others. Having a good estate plan is key. One of the smartest advisors in this area is Elizabeth P. Anderson, CFA, the founder of Beekman Wealth Advisory, a boutique financial consultancy in New York. Here is the first of three parts of her advice on this crucial subject:

The decisions you make now about where your assets go after your death can affect people’s lives profoundly. This three-part article walks you through some of the basic issues involved with estate planning. This initial part is figuring out how much your estate is worth.

Most people avoid thinking about, let alone planning for, their death. And yet making arrangements can be a liberating experience. Relieving your families of the burden of having to do it for you is also a demonstration of consideration, kindness and love.

Estate-planning advice often revolves around the choice and creation of legal structures and documents, such as wills and trusts. Indeed, these are critical tasks and you should consult a knowledgeable trusts and estates attorney to get them done right. However, before determining which structures to use for your estate-planning goals, you first need to figure out exactly what those goals are.

The most basic estate-planning issues to address are 1) how much you can give, 2) who gets your assets and 3) when, either during your lifetime or after your death. These three issues are interactive. A change in one can affect the others and the outcome of the estate-planning process.

A few words of caution (and encouragement) before beginning: Estate planning is a complicated and highly personal endeavor, with many moving parts. It’s usually best to proceed methodically, breaking down the project into manageable steps and then completing one at a time.

First, how much can you give away? Figuring this number out requires a few steps and a little math.

1. Net worth = assets – liabilities

How much you have is your net worth — the total value of what you own, minus the total amount you owe to creditors. To determine your net worth, the first thing to do is to gather the most recent records of what you own and what you owe.

On the asset side (what you own), these records include bank statements, investment statements (such as from mutual fund accounts and retirement plans), trust assets and business interests. Appraisals of personal property if appropriate and estimates of the value of other tangible property, such as real estate, should also be included. On the liability side (what you owe), the relevant documents include credit card statement, mortgage statements, tax bills, student loan statements, business loan documentation, and any other evidence of indebtedness.

Once you have the documents collected, you create an organized listing of assets and liabilities. Your net worth is the amount by which your assets exceed your liabilities.

There are many net worth calculation tools available online for free. For example, Rutgers University provides a relatively complete and well-designed worksheet. Some calculators do the math for you.

One nuance to be aware of in calculating your net worth is contingent assets and liabilities. They are assets and liabilities that don’t yet exist, but likely will, given the passage of time or a specified event occurring. For example, life insurance is the most important contingent asset for most people planning their estates. The death benefit does not yet exist, obviously, when you calculate your own net worth, but you should include it when thinking about how much to leave.

2. Portfolio spending = total spending – earned income

Once you have your net worth calculated, and you know how much of a portfolio you have, the next step is to figure out how much of a portfolio you need to support your life. The first step in this calculation is to determine how much you spend.

This is another place an online tool works well. Many spending calculators are available with a simple Internet search. You enter your monthly or annual spending by category (housing, food, clothing, insurance, entertainment), and the calculator totals it up for you. Be sure to include an estimate for foreseeable, but lumpy, amounts, such as for home maintenance needs (new furnaces, new roofs).

Now that you have your total spending, the next step is to figure out how much of that spending needs to be funded by your portfolio. First, you add up all income, including wages, salaries, pension, Social Security benefits and alimony. Then, subtract your income from spending. This is the amount that you need to pull from your portfolio, or portfolio spending.

3. Required base = portfolio spending / sustainable spending rate

Next, calculate the size of the portfolio you need to support your spending. We call this your required base. You divide the portfolio spending amount by the sustainable spending rate.

The sustainable spending rate is the percentage of a portfolio that you can withdraw each year without diminishing the portfolio value. It is total investment return minus inflation and taxes. Most practitioners use a rate of 4% as a general guide, but this can vary from person to person.

Thus, if 4% is the sustainable target spending rate, and your spending needs from your portfolio are $100,000 per year, you need a portfolio of at least $2.5 million. If you spend more than 4%, or your starting portfolio is less $2.5 million, you diminish the value of your portfolio over time.

Armed with all of these numbers, you can now approximate the amount of your portfolio that you can give away during your lifetime without impairing the quality of your own life.

4. Asset surplus = net worth – required base

If your net worth exceeds your required base, this amount is your asset surplus. If your net worth is $4 million and your required base is $2.5 million, you can gift up to $1.5 million during your life. On the other hand, if you don’t have an asset surplus, you may not want to give away your assets while you are alive.

5. Income surplus = earned income – spending

Even if you don’t have an asset surplus, you may still have an income surplus. If your annual spending needs total $100,000, and your annual after-tax income is $125,000, you can give away up to $25,000 per year without disrupting your lifestyle.

If so, note that the government sets an amount one can give as a gift each year without incurring gift taxes. The Internal Revenue Service calls it the annual exclusion amount. This now is $14,000 per recipient in 2014. Consult your tax advisor or trusts and estates attorney about annual gifts exceeding this amount.

Source:  forbes.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink: http://thetrustadvisor.com/daily-service/estate-planning-6

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4 Critical Skills Your Child Needs to Develop Before Inheriting Your Money

Forbes article by Covie Edwards-Pitt

inheritanceAs a financial advisor to wealthy families, I’m often asked how old a child should be before he or she gains access to inherited money or receives significant financial gifts. 

The truth is, age is a poor barometer of readiness.  Knowing this, wealth advisors have long encouraged parents to leave their money to trust, with a wise (hopefully!) trustee in place who is often given total discretion to assess whether children are able to handle receiving money from the trust.  But what exactly should trustees look for to make this assessment?  And if it’s parents who are still in the giving role (in the form of annual or lifetime gifts), how do they know if their children are ready?  How do they decide if a gift might help their child or in fact delay the very maturation they are hoping to promote?

It turns out there are 4 critical skills that children need to develop before they are ready to receive money from their parents or a trust.  I uncovered these through the interviews I conducted with successful inheritors for my book Raised Healthy, Wealthy & Wise.  It turns out that all of the successful inheritors I spoke with (successful meaning self-motivated, productive, and content) had developed these skills.  And you’ll probably recognize, if you happen to know anyone raised with wealth who isn’t yet successfully launched into an independent and productive life, that he or she lacks one of these critical four.

1. How to earn their own money and live largely contentedly off of money they’ve earned – The interviews I conducted revealed a fascinating truth: children raised with wealth feel most successful when they earn enough income to live largely within their own means, and know in their heart of hearts that they would be able to support their basic needs if the family money were to disappear tomorrow.  A number of the grown children I interviewed said that it wasn’t until they reached this point in life that they felt like they were their own person.

2. How to set and pursue their own vocational goals – Children from families without significant financial means are often given the explicit expectation that they are expected to get a job and support themselves out of college.  In contrast, children raised in wealthy families often pick up a more nuanced message that boils down to “we have money, so you should find work you love.” Trouble ensues when the child interprets this as “do only work you love,” and thus amasses an array of truncated career experiences, all abandoned because the child didn’t love them.  The inheritors I interviewed were encouraged by their parents to find work they enjoyed, but this message was tempered with a critical qualifier that this might take time, and that they should focus in the meantime on learning from every job and giving it their best shot.  Because their parents’ set this expectation, these children were able to stick through the rough patches in their early careers and stay in jobs long enough to learn what they loved, what they didn’t, and what they were capable of.

3. Have a self-worth that is not wholly wrapped up in the family’s wealth or influence – The inheritors I spoke with were certainly aware of their family’s wealth, but fundamentally, each had a sense of a core identity that was built first upon their own accomplishments and choices in life rather than on what had been given to them.

4. Have an earned sense of resilience and ability to overcome setbacks – Children growing up with few financial resources often learn resilience by default.  There is no other option.  For children who grow up in wealthy families, it’s often just the opposite.  Well-meaning and loving parents seeking to help often tap family funds to smooth out the rough patches for their children.  But unfortunately, this deprives children of a critical survival skill needed in life – the development of an internal voice that tells them “I can overcome this.  I can do this.” The successful inheritors I interviewed told me about failures and setbacks they had experienced where they had to plow through the consequences on their own and figure out how to move on.  And because they had had to do this when they were young, they knew they could do it again.

It turns out that teaching your children these four skills is the best investment you can make.  And it will do more to preserve family wealth than even the best constructed trust.

Source:  forbes.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/news/4-critical-skills ‎

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51 Flavors: A Survey of Small Estate Procedures Across the Country

Probate & Property Magazine article by Joseph N. Blumberg

head1Properly navigating a probate administration in any one state can be challenging enough, but often the client’s estate—and the attorney’s practice—is not so neatly confined within one state’s boundaries.

Fortunately, for certain types of assets and smaller estates, clients can avoid full probate proceedings and, in some states, any court involvement whatsoever. This article and the accompanying chart of state-by-state options seek to provide a starting point for attorneys who find their clients’ assets in unfamiliar territory.

The 50 states plus the District of Columbia generally implement one or both of two procedures for handling and disposing of assets in small estates: (1) a summary administrative procedure, whereby the personal representative must receive court approval to gather and distribute assets (“Summary Administration”); and (2) an independent affidavit procedure, whereby an appropriate person can prepare an affidavit to directly collect and distribute money or property owned by the decedent (“Affidavit Procedure”).

In the simplest terms, Summary Administration requires court formalities before collecting assets, but the Affidavit Procedure requires no court action, that is, it is a self-executing affidavit. Another major point of distinction between the states is the maximum dollar amount, or “cap,” under which an estate can qualify for a small estate procedure. Although these major distinctions are apparent, each state’s experimentations have produced numerous fine distinctions—the 51 flavors of small estate administration.

Key Distinction: Court Administration vs. Self-Executing Affidavit

The key distinction among the states (including the District of Columbia) is a 17/34 split as to whether a person must go to court to collect any and all types of probate assets or whether individuals can gather at least some assets without court approval. Almost every state has a Summary Administration procedure as an alternative to full probate; the distinction here is whether such a court procedure is the only method available to collect the assets of a small estate.

Must Go to Court—Summary Administration. In 17 states, Summary Administration in court is the only available small estate procedure. In other words, an individual must go to court before receiving the assets in question. Some of these states give effect to an affidavit upon a clerk’s approval, but others require a judge’s approval. Others do not allow an affidavit procedure at all, instead facilitating property and title transfers via court orders or letters. The states in which Summary Administration is the only available small estate procedure are as follows: Alabama, Arkansas, Connecticut, District of Columbia, Florida, Kentucky, Maryland, Missouri, New Hampshire, New Jersey, New York, Ohio, Rhode Island, Tennessee, Texas, Vermont, and West Virginia.

Some Assets Available Before Going to Court—Affidavit Procedure. A total of 34 states have some variation of an Affidavit Procedure allowing a person to directly change title or collect property without a court order or approval. With some exceptions, the individual can use an affidavit without ever filing in court. Attorneys should note that a waiting period—typically 30 to 60 days from death—must elapse before an affidavit can be used. Many jurisdictions provide forms. Most, but not all, Affidavit Procedure states follow the Uniform Probate Code. These 34 states can be further divided, as follows:

Pure Affidavit States: These 26 states allow an affidavit for a wide variety of assets, including any personal property and, in some cases, real property. These states are clearly the least restrictive in the nation, though the cap on such estates varies widely, from $10,000 to $100,000. (Alaska, Arizona, California, Colorado, Delaware, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Maine, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota, South Carolina, South Dakota, Utah, Virginia, Washington, and Wisconsin.)

Affidavit Anomalies: Eight more states allow some variation on the ability to collect assets without court approval. Five of these states do not fit neatly in either category: Louisiana (affidavit only allowed if intestate); Massachusetts (affidavit must be filed with court); Oregon (affidavit effective 10 days after filing in court); North Carolina (affidavit only allowed if intestate and after delivery to the court); and Wyoming (affidavit must be filed with court). The other three states allow affidavits or independent re-titling, but only for a limited class of assets: Georgia (bank account up to $10,000); Oklahoma (bank account up to $20,000); and Pennsylvania (bank account up to $10,000, $5,000 in wages, and $11,000 in life insurance).

Hybrid Approach—Affidavit or Summary Administration, Based on Size of Estate. Many of the Affidavit Procedure states use a multi-tier approach, allowing self-executing affidavits for smaller estates and Summary Administration for mid-sized estates (for example, Iowa, $25,000/$100,000, and Minnesota, $50,000/$100,000). This approach maintains some level of court (and attorney) oversight for mid-sized estates—typically $25,000 to $100,000—without requiring full probate. As a result, courts are only involved when the costs of administration can be better absorbed by the estate, while the smallest transfers of probate assets can occur by an Affidavit Procedure.

Maximum Value of the Estate

Summary Administration and Affidavit Procedures are only available for small estates, but what constitutes “small” is a matter of distinction among the states.

States’ maximum values (“caps”) for small estate procedures range from $10,000 to $275,000. The most common amounts are either $100,000 (10 states) or in the $30,000 to $50,000 range (18 states). Utah has a cap of $100,000, but it also allows re-titling of four automobiles, boats, trailers, or semi-trailers, regardless of value. Some states have not increased their caps for decades. Two states (Alabama and Michigan) allow the caps to increase based on inflation. The advantage of a cap indexed for inflation is that the figure is never antiquated; however, it also produces odd figures, along with the requirement for practitioners to “re-learn” the figure each year.

Some states (Oregon, Nebraska, Arizona, and California, to name a few) create caps that vary based on the type of property at issue. For example, Arizona allows an Affidavit Procedure for up to $75,000 in personal property or $100,000 in real estate. See Ariz. Rev. Stat. § 14-3971. Oregon has the nation’s largest total cap at $275,000, but that includes a cap of only $75,000 for personal property and $200,000 for real property, and Oregon requires the affidavit to be filed in court before it becomes effective. See Or. Rev. Stat. § 114.505–114.560. Again, the majority of states do not allow small estate procedures for real estate.

Some caps vary based on whether the spouse is the sole heir. For example, Maryland sets its cap at $50,000, but the cap is $100,000 if the spouse is the sole heir. See Md. Est. & Trusts Code §§ 5-601–5-607.

Rather than provide a dollar amount for small estates, numerous states allow the Summary Administration procedure “where the value of the estate does not exceed homestead and other allowances,” which typically includes family allowance, administration, funeral expenses, and medical expenses of the last illness.

Publication Requirement

The vast majority of states do not require a published notice for Summary Administration (many require direct notice to known creditors, which is at least arguably a constitutional due process requirement to bind known creditors). Only about five states require publication for all estates.

Policy Considerations

A variety of factors and policy choices are involved in a state’s choice of small estate procedures. Although the overriding goal may seem simple—to get a relatively small amount of assets into the hands of heirs with minimal cost and delay—the means of reaching that goal carry implications for beneficiaries, creditors, attorneys, and the courts.

Perhaps the greatest state interest is in protecting against improper distribution of assets. Because every state provides for some type of small estate procedure, it is fundamental that each state intends to accept some risk of improper administration in exchange for reducing the costs and burden of handling an estate. The question, then, is not if a state will accept risk, but how much.

The two ends of the risk spectrum can be expressed simply: A low dollar cap with more procedural requirements will prevent a greater number of frauds, but a high cap with less red tape will allow more fraud. But even though a low dollar cap may prevent a greater number of frauds, this greater number is of smaller dollar amounts. A state’s broad interest is in preventing improper administration. The involvement of attorneys and judges indeed adds protection against fraud or negligent failure to follow the law and notify creditors. But at some dollar amount, the protections are not worth the costs.

Another state interest is in relieving the burden on the courts. A full probate proceeding typically lasts at least six months, and often years. Summary Administration, particularly in a state that requires publication, commonly lasts at least six months. Summary Administration reduces the courts’ dockets compared to full probate proceedings, but only the Affidavit Procedure takes those cases out of the court system altogether.

Finally, attorney involvement is an important factor in some states. Certain states explicitly require small estates to hire an attorney. Others do so implicitly: although some individuals may be comfortable filing their matter in court without representation, very few would be comfortable drafting or handling a publication notice. On the one hand, the additional costs of an attorney, publication, and bond (depending on the jurisdiction) may consume a relatively large share of the assets that would otherwise go to beneficiaries or creditors. On the other hand, attorney involvement should help ensure proper distribution of the assets, which may be particularly desirable for decedents without wills.


Because of the many competing policy goals regarding small estate procedures, states have developed a wide range of options and limitations for collecting assets without full probate proceedings, and some without any court involvement. Very few states deal with small estates identically, however. Attorneys and clients should be aware that simplified proceedings are available in all states, but they should nevertheless proceed with caution, as “simplified” does not mean “simple.”

- Joseph N. Blumberg is an associate in Wealth Planning at Polsinelli PC in the firm’s St. Louis office. Any opinions expressed herein do not necessarily reflect those of Polsinelli PC.

Source: americanbar.org

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/news/small-estate-procedures

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Retirement Rich List: 314 Have IRAs Averaging $258 Million Each, GAO Estimates

Forbes article by Janet Novack 

retirementAt the end of 2011, some 314 taxpayers had more than $25 million each squirreled away in tax deferred Individual Retirement Accounts, Congress’ Government Accountability Office estimated.

Moreover, using data from the Internal Revenue Service, GAO estimated that a total of $81 billion was held in the lucky 314’s IRAs—or an average of $258 million per taxpayer.

The numbers were released in connection with a Senate Finance Committee Hearing into tax breaks for retirement, which some Democrats argue are too tilted to the wealthy.  The issue gained political salience during the 2012 Presidential campaign when Republican candidate Mitt Romney disclosed his IRA could be worth as much as $102 million.

Last year the Obama Administration put forward a convoluted plan for limiting the maximum amount any one individual could have in all of his or her tax favored retirement accounts combined. Critics warned it would limit the incentives small employers have to offer their workers 401(k)s.  Other Democratic proposals would curb the ability of non-spousal heirs to stretch out withdrawals from large IRAs.

According to the new GAO numbers, 42 million taxpayers have IRAs of any size and 622,000 have between $1 million and $5 million in IRA accounts. But only 9,000 taxpayers have more than $5 million in their IRAs.. The full GAO estimates are reproduced below:

ira chart

So how do so many Americans end up with $1 million plus IRAs?

Contribution limits to IRAs are modest  (a maximum of $5,500 in 2014, $6,500 for those 50 and older),  but large IRAs can be built in different ways .

The most common way is through rollovers from  employer sponsored defined contribution plans such as a 401(k)s and/or traditional defined pension plans that allow lump sum rollovers at retirement. The GAO calculated, for example, that if a worker had received the maximum combined employer-employee contribution to a defined contribution plan every year from 1980 to 2011, and invested it the S&P 500 portfolio, he would have nearly $4 million in that account by the end of 2011. By contrast, had he made the maximum allowed IRA contribution from 1975 to 2011 and invested in the same S&P fund, he would have built an IRA of only $353,379.

But mega-size IRAs come from more than just buying and holding the Vanguard 500 Index Fund. The most likely source, and the way that Romney presumably built his stash:  start-up stock.

Senate Finance Committee Chairman Ron Wyden (D-OR) put it this way in his opening statement at today’s hearing:

“So how did those massive IRA accounts come to be? In many cases, they’re sweetheart stock deals that most investors would never have access to. Executives buy stocks at a special, rock-bottom price – sometimes fractions of a penny per share – and use an IRA as a tax shelter. The stocks start out dirt cheap, but just like that they turn to gold, and the IRA shoots up in value. Wise investors have every right to use all the tools available to them, and no one should begrudge them their success. But IRAs were never intended to become tax shelters for millionaires – they’re designed to help typical Americans save for retirement.”

While taxes on Romney’s traditional IRA will eventually be due when he and his heirs make required minimum withdrawals, the use of Roth IRAs for start-up stock has even more potential for limiting taxes on the rich. Contributions to a Roth are made on an after-tax basis, but all withdrawals in retirement (or by heirs) are tax free.  Forbes has reported, for example, that Yelp founder 2010 Max R. Levchin held millions of shares of the social review site in his Roth IRA and that billionaire investor Peter Thiel put shares of PayPal and, it appears, early shares of Facebook,  in his Roth.

Traditionally, tax breaks for retirement have enjoyed bipartisan support. But they are among the most expensive breaks in the tax code and  will inevitably become a target if and when Congress pursues a tax reform aimed at lowering rates and simplifying the tax code.

Source:  forbes.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/headlines/retirement-rich


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9 Reasons Why Alan Greenspan Is Wrong About Everything

PropertyCasualty360 article by Bill Coffin (used with permission)

KPMG 2014 Insurance Industry Conference Keynote

alanFormer Federal Reserve Chairman Alan Greenspan gave a keynote address at the KMPG 2014 Insurance Industry Conference on why the U.S. economy – and the rest of the world, for that matter – are in such economic doldrums. He laid out 9 reasons why our economy still stinks, six years after the financial crisis of 2008-2009.

There was just one problem with it, though. Everything Greenspan said was wrong.

Well, maybe not wrong wrong. Not “2+2=5” wrong. But for all of Greenspan’s reasons for being skeptical about the future of the U.S. economy, John Kim, Vice Chairman and Chief Investment Officer from New York Life Insurance Company had a reason for why the future of our economy looks pretty bright.

Kim very graciously acknowledged Greenspan’s status and expertise, but he also noted that when it came strictly to the world of investments, he had an edge. And that informed a view that offered a counter to Greenspan’s infamously gloomy outlook.

And the audience was into it, too. Kim wasn’t just conjuring faerie tales. He had the data to suggest that all the smart money is on the United States of America, going forward.

Here are the reasons why.

We are at a major inflection point.

Kim started off by reminding everybody that six years ago yesterday, on September 9, 2008, Lehman Brothers declined 45% to 7.79 a share because a rescue deal with a Korean bank failed. Lehman’s stock was down 80% year-to-date, and its latest stumble caused the Dow to drop 280 points. 10-year Treasuries were trading at 3.62% and two-years were at 2.23%, numbers considered sky-high, now.

In the months that followed – the Lehman bankruptcy, AIG, Fannie Mae, Freddie Mac, Bank of America buying Merrill Lynch, JP Morgan buying Washington Mutual, Wells Fargo buying Wachovia…it was what Kim described as a “never-ending spiral of despair that resulted in the cavalry of central bank interventions, led by the Federal Reserve.” From that, we saw TARP, the AIG, Freddie and Fannie bailouts, and QE1, QE2 and QE3. From all that, Kim said, we are now a major inflection point.

The first major sign of recovery, Kim said, is improving employment. Jobs are slowly trending back and have nearly returned to where they were pre-crisis. Unemployment rose to 10.2% in 2009, and in 2014, it’s declined to 6.1%. Yes, Kim admitted, the quality of these jobs is not that great in many cases. Yes, participating rates are the lowest in two generations. “I get all that,” Kim said, smiling. “But I suggest that from November 2009 to today, there has been a dramatic recovery in our labor picture. Europe and Japan would salivate for these improvements.”

He’s right. They would.

We are coming off an unbelievably good market rally.

Kim pointed out what he called “an absolutely historic performance in our risk asset classes,” as a way to underscore what has been, since the crisis, one of the most remarkable market rallies in history.

How good has it been? On April 1, 2009, the S&P 500 index value was 811. The BAML High Yield Spread was 1,712. By September 5, 2014, the S&P 500 had risen to 2,007. The BAML High Yield Spread had dropped to 393. If you had invested in both, the S&P would have given you a return of 182%. The BAML High Yield would have given you a total return of 136%. And yet, over this period of time, the average ownership of stocks declined from 65% in 2007 to 52% in 2013. This has been one of the biggest bull markets in recent history, and it seems like a whole lot of people missed it.

That’s a shame, since this 5.5-year period has performed better than any period in history for these two classes, which are the most volatile you can get your hands on. That is the kind of rally we’ve been experiencing. That is a good thing.

Now, will the market correct meaningfully, or will it stay at these levels? Like all data, Kim said, “if you torture the data long enough, it’ll confess to anything.” But he noted that based on the “Rule of 20″ wand where the 10-year Treasury is today, the P/E multiple is currently below historical levels, which suggests that if the 10-year stays at 2.5%-3%, then the market has room to increase. Chances are, those rates will go up, though, but not for another few years. We’re getting close to a full valuation for the equity markets, Kim pointed out, but we’re not there yet.

Translation: don’t expect a correction any time soon. The rally will continue.

Low interest rates are a good thing. Wait, what?

That the rate on the 10-year will stay down for the next few years is somehow a good thing for equities is yet more bad news for those who invest in bonds, like insurers. The bad news is that we can expect interest rates to stay lower for longer, Kim said. “It has been a very painful two and a half years for us, interest rates-wise.” In July 2012, the 10-Year Treasury Yield hit 1.39%, prompting many to fear if the U.S. was about to hit a Japan scenario, but rates have since risen to 3.05% and then dipped back down to 2.46%. They might rise some more – which Greenspan suggested, but Kim remained skeptical. He sees rates staying lower for longer. But this isn’t necessarily a recipe for doom.

Keep in mind that the global economy is stalling, and stalling hard while the U.S. is, comparatively, growing nicely. We can expect around 4% GDP growth for the remainder of the year, while the latest IMF forecast for the world cut global GDP growth from 3.7 to 3.4. Ouch.

With that as a background, global yield arbitrage all plays to our favor. If you are a German investor, Kim said, and you are comparing a 2.5% yield on a U.S. 10-year versus 1.0% on A german one, or a 2.2% return on a Spanish one, then putting your money in the U.S. Treasury market becomes a no-brainer.

China, Japan and OPEC, for example,are all doubling down on U.S. Treasury bonds, Kim said. They now hold more than $2.7 trillion in U.S. Treasuries. Why? Because despite everything, the U.S. market is still the “deepest, most liquid place to hold cash,” Kim said. At present, some 35% of our total treasury debt load is held by foreigners, which is up from 31% from 2011. The Chinese government is increasing its purchase of U.S. Treasuries at the fastest pace on record since it began buying our Treasuries 30 years ago. When China, Japan and OPEC are all placing their long-term bets on America’s future, that’s a good sign.

Hardship breeds strength.

The “still low environment,” as Kim put it, is also a good thing because it is, quite simply, forcing insurers to get better at their business. Unable to rely on yield from their investments, insurers have no choice but to turn to operations for profit. Insurers are now forced to consider product changes, revisit their premiums and fee schedules, monitor growth in markets (and consider whether it is time to exit them), and other features. This is a kind of evolutionary pressure not entirely unlike what insurers underwent during the prolonged soft market of the 1990s, and ultimately, it makes for a harder, faster, better and stronger insurance industry.

Companies are having to take a sharper look at risk management on their investment side. They must embrace enterprise risk management and engage in tighter interest rate and cash flow hedging. Kim cited an NAIC figure that of the total swaps on the books for insurers, some 75% of that swap activity is noted for interest rate hedging purposes. This is a very positive sign, Kim said.

Operating efficiency is also improving across the industry as companies are embracing transformations of their operating models. This is happening more at public companies (driven by shareholder expectations) rather than mutuals, Kim said, but everyone is thinking about how to streamline their operations and manage their unit cost structures. The three elements of operational model changes to keep an eye on are process & technology (can the day-to-day operations be made more efficient through technology?), work structure (can the company delayer its own hierarchy?) and organizational effectiveness (should the company revisit its internal roles, responsibilities, governance and talent?)

These are all worthy issues to face head-on. Ideally, every insurer should do this all the time, but we all know that when times are fat and insurers can get by on their investments, complacency can set in. That might work during peacetime, but now it’s war, and it’s time to get lean and mean. Your competitors are already doing it, and when you do too, Kim implied, you’ll be a better company for it. This is all a good thing.

Alternative investments have earned a place at the table.

With interest rates so low, many insurers are embracing alternative investments. “It’s clear that we’re pushing the envelope in terms of adding yield, whether we’re going into higher-yield bonds, or CMBS, emerging market, debt, or commercial mortgage loans,” Kim said. Some insurers have already gotten into this space faster, but the entire industry needs to move to alternatives if they want their investment side to come back to life.

And indeed, it seems like more have than haven’t. “The entire universe of investors have gone alternative,” Kim said, noting that since 2005, traditional investment assets have grown at a compound annual growth rate of 5.4%. Alternatives, on the other hand, have grown at an annual rate of 10.7%.

Private debt, private equity funds of funds, private equity single funds, REITs, infrastructure, mezzanine debt, hedge fund of funds, commodities, hedge funds (single manager) are all expected to increase.

“This is powerful, but very dangerous,” Kim warned. “If you do not have the capabilities to analyze this, you could do very poorly.” He noted that New York LIfe, given its size and sophistication, does as good a job with alternative investments as anybody, but they don’t engage in a lot of common alternatives, such as single-manager hedge funds, because it considers them too risky.

That said, alternatives are here to stay, and they provide insurers with a strong avenue for yield, provided that they are engaged with a sober approach and a firm sense of risk management. Now is not the time to take a Wild West approach to alternatives. In fact, it’s probably never the time to take a Wild West approach to alternatives.

The U.S. middle class remains a largely untapped opportunity, especially for insurers.

Since the global financial crisis, Kim said, the recovery has really only been beneficial for the wealthy. From 2009-2011, for example, the average net worth per household for the top 7% of all households increased by 28%, from $2.5 million to $3.2 million. Conversely, the change in average net worth for the bottom 93% decreased 4%, from $139,896 to $133,817. Kim was pretty straightforward about it: “This has been one mother of a gift” that the central banks bestowed upon the world’s wealthy, and the social impact of this, in the long-term, will be profound. But, Kim stresses, from a financial and economic perspective, this might not be the worst thing in the world.

If you don’t look at it in terms of 7% vs 93%, but instead look at distribution of wealth in quintiles, there are lot of insurance sales opportunities in the 2nd and 3rd quintiles, which make up the middle class and upper middle class, respectively. The top quintile is already well served by banks, wealth advisors, mutual fund industry, and the like. And the industry should continue to serve that market, Kim said. But what New York Life likes are those 2nd and 3rd quintiles. There are a lot of Boomers in those who are turning 65 at a rate of 10,000 a day, and who will retire at that rate for the next 20 years. This is a retirement tsunami, Kim said, and these people are desperately shifting to treasuries, bonds and various forms of annuity products and other conservative investment products that insurers do a better job of constructing and offering than anyone else.

So the wealth gap means more opportunity for selling to the middle class. Don’t give up on them.

There global middle class is exploding, and the U.S. is there to sell to it.

The opportunity of selling to the middle class is especially true if you look outside of the United States, Eurozone and Japan. “In many respects, the core fabric of our middle class going away is offset by the global growth of the middle class in China, India, Malaysia, and Korea,” Kim said. “In Asia, these people are going from the novelty of three meals a day to buying designer bags for the wealthy.” There is a once-in-a-lifetime growth in the middle class around the world, driven by a shift in the share of world GDP. By 2018, 54% of the world’s GDP will come from the so-called “developing economies.”

Concurrently, the world’s population is increasingly urban. There are already more people living in cities than in rural areas across the world, and by 2050, some two-thirds of the world’s population, buoyed by a huge middle class, will be concentrated in cities. This is a huge set-up for insurers in general and U.S. insurers in particular, which are uniquely well suited for serving both middle-class clients and urban clients. In fact, this might be a market development “perfect storm” the likes of which the modern insurance industry has never seen before.

Foreign oil? What foreign oil?

Getting back to points of strength on the U.S. economy, Kim spoke on the narrowing gap between U.S. energy consumption and production. Citing information from BP – “not the most credible source these days,” Kim joked, in reference to BP’s recent ruling of gross negligence in the Gulf oil spill – increasing domestic production could make the U.S. energy independent by 2030. But to back that up, Kim cited more conservative numbers from the Energy Information Administration that also suggested the gap between consumption and production would get very narrow by 2030.

Compare this to 2005, Kim said, when we imported 30% of our energy consumed on a daily basis. That is a huge improvement, especially in Texas.

Case in point: some 20% of new construction in the largest central business districts in this country is currently happening in Houston alone. Now, Texas has seen more than its share of boom and bust cycles, Kim noted, but in our chase for energy, Texas is having a boom that extends well beyond oil and gas. Other large economies in the region are benefitting as well. Most folks with an “East Coast mentality” don’t appreciate that, Kim said, but it’s a big deal, and its a big reason why the indicators in the U.S. are pointing up.

The U.S. has a huge new natural resource: Big Data.

200+ million hours of video uploaded to YouTube each day. 81 billion “likes” on Facebook last month. nearly 5,000 text messages per month…from the average teenager. 15 billion tweets last month. The advent of “SoLoMo” – Social, Local Mobile. We are awash in data, and all of that data is coming from us – info or content that some 3 billion human users are volunteering.

But this is all just the beginning. There is an information supernova just getting underway as the Internet of Things – an increasingly vast array of personal items and technology  that exchange and upload information on those who use it, such as GPS info, purchasing info, medical info – gets established. At the same time Kim gave his address, Tim Cook and his colleagues at Apple were unveiling the Apple Watch, Apple’s first wearable computing device. Given Apple’s ability to change behaviors in ways we never thought possible, Kim said, the watch could be a game-changer like the iPad, and deliver a new magnitude of ergonomic and health diagnostic information. “Remember September 9, 2014 not for what John Kim said, but for what Tim Cook said,” Kim noted.

We are at a point where we can quantify the positive impact of Big Data, Kim said, noting that as we realize some $300-$600 billion in annual cost savings and productivity gains from Big Data, the U.S. economy is building fresh GDP equivalent to about +1.5 to +3%…all from Big Data. The Economist noted that data is new big natural resource, analogous to what steam was in the 18th century, what electricity was in the 19th century and what hydrocarbons were in the 20th century.

And the U.S. is driving it.

The big postscript to this is that not everybody is making the most of it just yet. Insurers are well behind the curve when it comes to implementing a digital strategy. In a world where there are currently five exobytes of information on the internet (Google an exobyte to see how big it is), some 30% of insurance companies are doing nothing with it. Another 43% are trying to understand it. That means that three-quarters of the insurance industry are trying to figure out what to do with Big Data.

The truth is, few in the insurance industry have really used Big Data to their advantage – whether it’s because of constrained IT budgets or simply a lack of focus or understanding. Maybe 7% of insurers have a well understood digital strategy. Maybe 3% have fully integrated a digital strategy into daily operations. But the upside here is that when it comes to Big Data, Kim said, because so few insurers have harnessed data to their competitive advantage in a meaningful way, especially in life insurance, the only way to go is up.

“It’s like playing hockey in Costa Rica,” Kim said. “We’re all pretty good, considering the standards.”

Source:  propertycasualty360.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/headlines/alan-greenspan

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FINRA And The SEC ‘Like’ Social Media

Forbes article by Joanna Belbey 

social_media - Copy“We’ll be out of compliance” is still the major reason that financial services firms block the use of social media for regulated users. However, that fear is contrary to the evolving regulatory landscape. Both the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) state that they see a value in social media as an educational tool for investors.

This appreciation for social media was reinforced recently at the LIMRA / LOMA 2014 Social Media Conference for Financial Services, at the “Ask the Regulators!” session.

Owen Donley, Chief Counsel, Office of Investor   Education and Advocacy, SEC and Thomas Selman, Senior Vice President, FINRA discussed how their respective organizations seek to protect investors and generally view social media in a positive light.

SEC: Use social media to help prevent fraud

Owen Donley of the SEC conveyed that securities fraud is a growing problem, with a significant number of cases brought to the Commission involving the promise of unrealistic returns each year. The problem is only getting worse. As more and more affluent investors have turned to the internet to conduct research, fraudsters followed. Or in the words of April Brooks, Special Agent, FBI, “If there is a way to exploit it, these individuals will exploit it.”

Fraudsters can use social media to manipulate the market and spread rumors, distribute online investment newsletters, and to promote fraudulent solicitations such as Ponzi schemes, according to Donley.

However, financial services firms can play an important role in preventing fraud. Donley stated that firms have the opportunity of reaching millions of investors through social media. By helping investors make more informed decisions, firms engage with their customers while enhancing their brands – two of the goals of social media. To this end, the SEC offers Investor Alerts and Bulletins, and various content on Investor.gov that firms can share via social media. FINRA Education Foundation also offers articles that firms may share on social media. As financial services firms often struggle with the challenge of creating compliant content, sharing content that educates investors is a win-win for everyone.

FINRA:  Social media is exciting when it comes to education and disclosures

Thomas Selman of FINRA then reiterated FINRA’s stance that social media was fine, just as long as firms took a thoughtful approach towards applying existing communications rules to this new form of communications. Selman reminded the audience that FINRA’s principle based approach did not dictate technology, and as a result, various middleware vendors emerged to support firms’ use of social media. He said that FINRA followed three major concepts when providing guidance on social media:

  • Business records that appear on social media are subject to recordkeeping and supervision requirements. Content, not the device, is determinative.
  • Static content, such as a profile on LinkedIn LNKD -6.71%, needs to be reviewed in advance by a registered principle of the firm. Interactive content, such as a tweet or update, may be reviewed after the fact.
  • Third party content that firms “adopt” or become “entangled with” are subject to recordkeeping, suitability and supervision rules.

(For more details, see FINRA Regulatory Notices 10-06 and 11-39.)

Selman went on to convey that although there have been some enforcement cases (such as Jenny Ta, the “tweeting broker” who made exaggerated statements and pumped up stock that she and her family owned), compliance around social media appears to be good.

In fact, Selman relayed that during a Social Media Sweep last summer, of the 23 firms examined, only 16 allowed their sales force to use social media and typically only for pre-approved static content. For the most part, FINRA found the content compliant. However two issues emerged:

  • Registered reps claimed more acumen than they had.
  • Business records were stored in such a way that the social media formatting was lost when retrieved. This presents a real challenge to supervisory review.

The future: Layered disclosures on social media?

In a Question and Answer session, both Selman and Donley stated that firms have been requesting additional guidance on disclosures in general, and on mobile devices, in particular. One concept that is being discussed is “layering” disclosures — making key information easily accessible, while making additional details available for more serious interest.

Selman concluded the session by saying that that as a regulator, he finds social media exciting when it comes to educating the investor through easily accessible disclosures.

In summary, fear not, both the SEC and FINRA have approved the use of social media to educate investors , and have even provided some compliant content to help get firms started.

Source:   forbes.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/news/like-social-media


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Joan Rivers’ Net Worth Inherited by Melissa?

Hollywood Take article By Melissa Siegel

joan rWhat was Joan Rivers’ net worth at the time of her death?

The exact value of her estate is still unclear. But between Joan’s QVC line, her Fashion Police salary, and her $30 million NYC penthouse, it’s clear Melissa will inherit plenty from her mother.

Joan Rivers’ death has led to a host of questions about the late comedian’s net worth. If her funeral is any indication, daughter Melissa and the rest of the family should be well taken care of.

The ceremony was just as lavish as Joan Rivers wanted it. Despite Rivers’ now-famous 2012 quote about her ideal funeral, the event did not feature Meryl Streep “crying in five different accents” or Bobby Vinton singing “Mr. Lonely.” But Joan Rivers did get white gardenias and performances from The New York City Gay Men’s Chorus , Audra McDonald, Hugh Jackman, and the New York City Police Department Emerald Society bagpipers and drummers.

The funeral even featured a literal red carpet that was then buried with Joan Rivers. Of course, there were plenty of stars in attendance, including Whoopi Goldberg, Sarah Jessica Parker, Barbara Walters, and Bernadette Peters.

“She would love this,” guest Deborah Norville said during the Joan Rivers funeral. “We’ve all said this so many times: The one person who would really think this is the greatest thing ever is the lady who it’s all about, and she’s not here.”

The extravagant funeral was no surprise. After all, Joan Rivers showed no signs of a declining net worth in the years before her death.

Rivers left behind a New York City penthouse that she once compared to Marie Antoinette’s castle. The 5,000 square foot home included floor-to-ceiling windows and a parlor. The mansion was put on the market a few years before Rivers died, and the family’s real estate agent thinks it could sell for more than $30 million. Between this, her Fashion Police salary, and her reported $1 billion of merchandise sales on QVC alone, Joan Rivers’ net worth may even be above the rumored $150 million.

“I could pull my living in and live OK, but I don’t want to live OK,” Joan Rivers once said. “I’m very happy to live in my penthouse, very happy I can pick up a check, very happy to have a great life, and be able to spread my wealth a little bit.”

Of course, some of Joan Rivers’ net worth will go back to the government in the form of taxes. But ironically, many funeral expenses can be deducted from the estate’s payment to Uncle Sam, as long as they are “reasonable expenditures.” These include the costs of the tombstone burial plot, and temple services. So Rivers’ net worth should not dip too much after her death. How much of this estate will go to her daughter remains to be seen, however.

Source:  hollywoodtake.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/headlines/joan-rivers-net-worth


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How To Prepare Your Heirs For Their Inheritance

Forbes article by Steven Abernathy and Brian Luster

“Be careful to leave your sons well instructed rather than rich, for the hopes of the instructed are better than the wealth of the ignorant.” – Epictetus

Prepare-HeirsResearch cited in a 2013 Wall Street Journal article found that 70 percent of an affluent family’s wealth is typically gone by the end of the second generation, and 90 percent is destroyed by the end of the third. Nearly every culture has some version of the axiom “from shirtsleeves to shirtsleeves in three generations,” dating back to China over 2000 years ago. The proverb describes how the first generation works hard to create a fortune; the second generation enjoys its spoils, substituting hard work with entertainment, and the third generation — with no role model to follow — squanders what remains of the fortune, relegating their children to starting the process over again. Unsurprisingly, when the family fortune is blown, family unity is typically obliterated along with it.

The answer for what is responsible for such wealth destruction is surprising. Many might expect the culprits to be poor investment strategies, poor economies or turbulent financial markets, as did nearly two-thirds of ultra-affluent families recently surveyed by The Family Office Exchange. The real culprit is far more insidious, though.

Roy Williams and Vic Priesser collected data from 3,250 families who had lost their wealth. Less than 3 percent said poor planning and investments were cause for reversal of fortune. Twenty five percent said heirs were unprepared, and, 60 percent replied it was lack of communication and trust in the family. Affluent families continue to fall short in this area.

Evidence to support the consequences of neglecting emotional legacy can be seen in the families who ignored it themselves, such as Cornelius Vanderbilt’s heirs. If subsequent generations of his clan hadn’t spent so much, their total fortune would be worth around $205 billion in today’s dollars, according to CNNMoney. However, by 1973, in just two generations, not a single heir was even a millionaire.

So, what do successful families do differently?

Start with self-exploration. The foundation of successful multi-generational planning begins with a conversation, often in the form of a family round table, whereby the heads of the family share their vision for the family, both now, and into the future. They discuss where they are at present, and, what separates their current reality from their potential future. Thus the planning process begins with a dialogue intended to be open, inter-generational, and ongoing.

Articulate the family’s unique story. The next stage in the process of successful multi-generational wealth planning is to capture the memories, experiences, and life lessons from the older generation in the family story. This offers the younger generation a deepened understanding of their predecessor’s values, responsibilities, and choices. These conversations can be quite a powerful and moving experience both for the head of the family and as well as his or her descendants. The family story reveals ideals, beliefs, values, and the shared vision that might otherwise have been left unsaid. It also allows the family to identify and articulate its common vision, and support both the family and its vision for multiple generations.

Create a Heritage Statement. The Heritage Statement constitutes all documentation of the story and values, as well as the appropriate structure for sharing those values with future generations. It describes who the leader of the family is, where s/he came from, what s/he believes, and hopes for the family now, and in the future. More importantly, it captures the personal story in the leader of the family’s own words, eliminating the risk that this personal history is re-written by future generations.

Hold annual family retreats. Successful families set aside a few days each year for annual family retreats, intended to foster communication, create a shared experience, and encourage growth. External facilitators will lead the family in exercises aimed at sharing the family’s values, vision, and Heritage Statement in an open, honest, and comfortable setting. When ongoing, regularly scheduled family retreats become part of the family’s calendar, there is a structure to work on the family’s activities, make plans for the future, share ideas, and have fun. Meeting at least once annually is recommended.

The goal of these gatherings is to promote family unity through team building, leadership, shared responsibility and active communication. This is the time, year after year, where families renew their commitment to making healthy decisions and nurturing family harmony. The ultimate goal of heritage design is to provide each family member the support needed live a meaningful and fulfilled life.

Build Collaborative Teams. Eventually all principal advisers– legal, tax, financial–will retain a copy of the family’s Heritage Statement. As it is updated, they will receive these changes as well. The Heritage Statement offers each adviser a clear, shared mission for their work goals. This clearly defined, common vision aligns not only the goals, beliefs, and values of the family, but, offers a road map from which the advisers can best work in service to the family.

What about the actual family business? This should be kept separate. The goal of a successful meeting will be for everyone in attendance to know they’re part of a family owning a business; not a business owning a family.

The information contained in this article is provided solely for convenience purposes only and all users thereof should be guided accordingly. For additional disclaimers and information, please visit us here.

This post originally appeared on Forbes.com.

Source: huffingtonpost.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/news/prepare-your-heirs ‎


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The Estate Settlement Process

Business First article by Braden Lammers

estateIt could be millions of dollars or a grandma’s photo album.

But to heirs, the photo album often means more than the money. That’s according to officials with Hilliard Lyons LLC’s trust company operation in Louisville.

“The biggest conflicts are never about the money,” said Jeffrey Uhling, senior vice president and trust and estate planner for Hilliard Lyons Trust Co. in Louisville. “It’s always about the stuff.”

The trust professional’s task is to divvy the wares and money and other assets among the heirs. And with an ever-increasing senior population — or silver tsunami, as it is sometime referred to — Hilliard Lyons is planning for the future.

The company has expanded its trust operations in Louisville and recently announced that in its Cincinnati office is adding its first trust employee, an attorney and a certified financial planner to its Cincinnati office.

Hilliard Lyons has added 11 employees to its trust operations in Louisville, bringing the total employee count to 48 during the last nine months. The Cincinnati-based trust professional, Jessica Nielsen, reports to the Louisville office.

Trust and estate settlement is part of the overall financial planning process, said Don Asfahl, president of Hilliard Lyons Trust Co.

Uhling, an attorney, said that although estate settlement can be complicated, “it really boils down to what do you have, whose name is it in and what do you want to do with it?”

Asfahl said it is important to have an estate plan because if a client does not have a written plan, the state will decide who gets what.

In the course of interviewing the Hilliard Lyons officials, I began to wonder how the process worked.

I asked Deb Moore, vice president and trust specialist with Hilliard Lyons Trust Co. in Louisville, who explained how her company goes about settling the estate when it is named executor.

Once a person dies, Hilliard Lyons will send two trust officers to the person’s home to begin collecting, securing and cataloging the person’s assets, Moore explained. The assets can be anything from a toaster to a Picasso.

“We’ll try to get all of the assets that we know of, and that’s where estate planning comes in handy,” Moore said. “You have a list of all assets.”

Whatever is collected is cataloged and put in a vault at Hilliard Lyons while the settlement process is completed. Appraisers are used to place a value on the items collected.

Settling an estate can also mean making funeral arrangements, dealing with angry relatives, finding homes for the individual’s pets and paying the bills for a surviving spouse, Moore said.

Little surprise, then, that Uhling said it is not a short process.

The collection and cataloging process usually takes more than a month.

Meanwhile, Uhling or another attorney will go through the settlement process of notifying those named in a will or a trust and filing the will in probate court — usually within two to four weeks. That triggers a six-month period during which creditors can claim assets of the estate.

After creditors are paid, disbursements to heirs can begin, unless an estate tax return needs to be filed. The threshold for needing to file a federal estate tax return is $5.34 million in total assets.

If a federal estate tax return must be filed, you can probably count on two and a half years or more before the estate is settled, Uhling said. Unless, of course, the IRS decides to audit the estate. If no estate tax returns are filed, most are done within a year, he added.

“You can’t officially close the estate until you get a closing letter from the IRS,” said Leslie Coyle, senior vice president and managing director of trust services for Hilliard Lyons Trust Co.

As the financial planners work with those heirs, Asfahl said, the hope is that they will develop a relationship to help the next generation through the estate planning process.

Source:  bizjournals.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/headlines/estate-settlement

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Estate Planning for Your Horses: Protecting Your Horses if They Outlast You

JDSupra Business Advisor article by Catherine Eberl

brown_horseIt is 8:00 on a brisk, summer morning. You just finished your morning barn chores — the horses are fed, their stalls are clean. Your mare is peacefully grazing outside while her one-month-old filly prances around her; your two geldings look on. As you start your second cup of coffee, you catch up on the daily news. An article about horses catches your eye —“Horses Seized from Property After Owner Dies.” You read on. Twenty horses were seized following the unexpected death of the man caring for the horses.

The man’s widow, not a horse person herself, asked for the horses to be taken away. The horses will be sent to auction. There will be no reserve. Some of the horses are old, others are malnourished from improper care since the man’s untimely death. The horses that don’t sell may be euthanized if they cannot find suitable foster homes. You are in disbelief. How can this happen? Will these horses really be euthanized? Will others be sold to killer buyers? How did the man not plan for this? You look out the window at your small herd and realize that this could happen to them — you do not have an estate plan. You never even thought about a will. If something happened to you, your horses could meet the same, sad fate.

What Happens to my Horses if I Don’t Have an Estate Plan?

If owners do not take appropriate steps to provide for their horses, the consequences can be dire. Without a will, your horse will become the property of whoever is entitled to inherit from you in accordance with state law. Like the story above, these family members may have no interest in inheriting your horses, and no knowledge of how to care for your horses or how to go about selling your horses in a fair sale.

What Can I Do to Protect My Horses if They Outlive Me?

With careful planning, and sound legal advice, your horses will be protected if they outlast you. The first consideration in estate planning for your horse is “who” – who among your family, friends, or fellow equine contacts has the desire and knowledge to properly care for or sell your horse?

The next consideration is the “how” – how should this person take ownership of your horse? The most simple option is stating in your will that the horse be given to a specific friend or relative. You may want to consider leaving a bequest of cash, or other property, to the person taking the animal to help cover the care of the horse. If your will names specific horses to various individuals, you will need to continuously revise your will, as most people have a succession of horses during their lives.

You can also create a trust for your horse. An increasing number of horse owners are opting for a horse trust. A horse trust is a written declaration of how the horse owner wishes their horse to be cared for aft er the owner’s death. A horse trust ensures care for the horse if the owner gets sick or dies. A trust can be inter vivos (created during the lifetime of the horse owner) or created under your will after your death.

In a horse trust, you will name a trustee who will carry out your wishes for the horse. You can provide detailed instructions for the distribution of trust funds for the horse’s care. The trust will mandate how the funds will be administered and where the remaining assets should go following the horse’s death. The trust can contain information about your horse’s conditioning, health issues and food preferences. When selecting your “horse guardian,” you ideally would want a person who currently owns or has cared for horses in the past. The horse guardian will care for your horse in accordance with your instructions set forth in the trust. When preparing the trust, you should carefully consider the cost of care for your horse, and fund the trust accordingly.

A horse trust terminates upon the death of the animal. If the trust is established to provide for the care of more than one horse, the trust will terminate upon the death of the last surviving horse.

What Are the Benefits of Establishing a Trust as Opposed to Making a Simply Bequest of a Horse in Your Will?

If you want to give the person who will care for your horse cash to pay for expenses, a trust structure offers more oversight, particularly if there are two trustees. The trust assets must be segregated from the trustees’ personal assets, and must be used for the horse’s upkeep as directed in the trust document. If the cash is simply given to the horse’s new owner outright, the cash can be used by the owner, even on the owner’s personal expenses, without limitation. You take your chance that your horse will receive proper care.

In addition, using a trust allows for succession of your “horse guardian.” If you leave your horse to someone outright as part of a bequest, and that person dies shortly thereafter, that person’s estate plan determines what happens to your horse. Instead, if you had left your horse to a trust, and the trustee dies or becomes incapacitated, the person that you name as your back-up trustee will take over, and the back-up trustee will continue to administer your trust and to carry-out your wishes.


Although proper estate planning can be daunting, having a knowledgeable equine attorney to guide you through the process will relieve much of that burden. The time and effort to think through and plan these complex issues will assure that your equine family will be protected after your death.

Source:  jdsupra.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/headlines/horses

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